Monday, August 18, 2014

The Governor addressed the money committees of the General
Assembly Friday morning. He detailed the
revenue shortfall faced by the Commonwealth.
The total budget reductions required after tapping the $846 million in
budgetary reserves included in the current budget, and withdrawing $705 million
from the Rainy Day Fund, total $882 million, $345.5 in FY 2015 and $536 million
in FY 2016.

Finance Secretary Brown outlined the steps ahead:

Budget actions will be identified and implemented to address
the reduction in the fiscal year’s 2015 and 2016
forecast.

– Prepare and review of
agency-developed reduction plans.

– Implement agency budget reductions to
address the shortfall in the current fiscal year.

– Make recommendations in the 2015
amended budget bill for additional items that require General Assembly
approval.

The Governor pledged to try to protect public education,
transportation, and health care.

As details regarding reductions are revealed, we will send them
your way. We anticipate that any cuts to
public education won’t be large, but our schools are dying
the death of multiple small wounds since 2004 when we last saw a significant
increase in funding. We have lost all
that we gained then.

In the short term, maybe lawmakers should heed the advice offered
by the editor of The Virginian Pilot:

This is going to be rough, and it may well necessitate the
kind of draconian cuts undertaken six years ago, at the start of the Great
Recession. But it doesn't need to be as bad as it's shaping up to be,
particularly if lawmakers come to their senses and accept the piles of federal
tax dollars sent to Washington by Virginians and available for return to the
commonwealth. (Medicaid
expansion)

But, in the meantime, this shortfall should lead thoughtful
observers to question the adequacy of Virginia’s tax structure. One of the things our Governor said on Friday
was, “This past fiscal year marks the first time
that general fund revenues have declined in the Commonwealth other than in a
national recession.” As a consequence, we
will be dipping into the Revenue Stabilization Fund (Rainy Day Fund)
when our state’s economy and our nation’s
economy is [sic] expanding.

This begs two questions.
First, if we are dipping into this fund when times are good, will there
be a sufficient balance to protect core services when we hit the next
recession? Second, do we need to examine
the adequacy of our tax structure? Is
our tax structure providing sufficient revenues to support core services?

In short, Virginia faces fundamental change. For decades, our economic growth has been
driven by ever increasing federal defense spending in Northern Virginia and
Hampton Roads. This funding has been
cut, and it appears that more cuts are on the horizon. The consequence of these cuts and an expanding
economy is high dollar defense related jobs replaced by low paying jobs in the
service sector. This drives down income
tax revenues.

This leads to the most interesting passage in McAuliffe’s
speech:

… we have
already seen the damage sequestration has done to our economy so far.

And the
Secretary of Defense has indicated, if no changes are made by 2016, an
additional $50 billion in defense cuts will have to be made.

We all know
of Northern Virginia’s economic reliance on the Department of Defense, and in
Hampton Roads, military spending accounts for 42% of the area’s Gross Regional
Product.

If I have
learned anything after more than 40 years in business, it’s that you don’t sit
idly by when your largest customer cuts spending. You get out there and hustle
to find new sources of revenue so that you can keep your business
healthy.

That is why
we must work together to build and maintain the best public infrastructure
system anywhere in the world, so that we can attract the next generation of
jobs in cybersecurity, biosciences, data analytics, aerospace and other
industries that are building the economy of tomorrow.

Whether it’s
the Pentagon, a Fortune 500 company or a small business, when decision makers
start looking for a new location, they look at which state offers the best
public schools, the strongest transportation networks, the highest quality
health care, the safest communities, and the cleanest environment.

These are all
enormous strengths for Virginia that contribute to the quality of life that our
families enjoy. But if we are going to out compete 49 other states and Build a
New Virginia Economy, we cannot afford to be complacent.

The Governor is right, we cannot afford to be complacent, but
Virginia has a record of complacency when it comes to supporting public
education and the other core services.

On the same day the Governor gave his speech, our friends at the
Commonwealth Institute (CI) released an “infographic”
detailing Virginia’s declining investment in the
education of her children. CI accurately
asserts that, “School funding
per pupil is down 16 percent compared to 2009, after adjusting for
inflation.”

Virginia can do better, and must do better if
we are to, as the Governor said, “Build a New Virginia Economy.”

Where do we stand now?

39th in state per-pupil funding,
pre-K-12

37th in teacher pay

13th in state corrections
expenditure per offender

10th in wealth

46th in state and local taxes as a
percent of personal income

Virginia can do better. Our
politicians talk a good game, but the truth is in the numbers, and the numbers
reflect that public education is a low priority. Does this reflect the will of the people of
Virginia? Absolutely not! The most recent Commonwealth Education Poll
(2013-2014) reveals that, “Virginians remain strongly supportive of funding for
the public schools. Almost two-thirds of
Virginians (65%) say that Virginia schools do not have enough funds to meet
their needs ….”

We have a governor who is inclined to help us, but, at this
point, his ability to advance an agenda is compromised by the fact that his
party controls neither the House nor the Senate, and I suspect that even he
will need a serious push if we are to see bold action.

As Shakespeare said, “Timing is everything.” There is little opportunity for meaningful
progress in the short legislative session of 2015, but 2016 will be a budget
year, and there is an election for all members of the General Assembly in
November of 2015. Starting with the end
of the 2015 session, February 28, 2015, we will need to start making
noise. We should follow the advice of
Laura Goren at the Commonwealth Institute:

Virginians who care
about the quality of their local schools should be asking their state
legislators, local elected officials and school boards some tough questions
about how we can all bring to the table the resources that Virginia’s kids
need.